SEC official says U.S.-listed Chinese companies must disclose government interference risks

• Chinese companies listed on U.S. stock exchanges must disclose the risks of the Chinese government interfering in their businesses.
• Democratic commissioner Allison Lee's comments are the first by an SEC official since Chinese regulators launched a cyber probe of Didi Global last week.
• Over the past decade, Washington policymakers have focused on getting U.S.-listed Chinese companies to comply with U.S. Public Company Accounting Oversight Board rules.

Chinese companies listed on U.S. stock exchanges must disclose the risks of the Chinese government interfering in their businesses as part of their regular reporting obligations, a top U.S. Securities and Exchange Commission official said on Monday.

Democratic commissioner Allison Lee's comments are the first by an SEC official since Chinese regulators launched a massive cyber probe of ride-hailing giant Didi Global last week, just days after its $4.4 billion New York listing, wiping 25% off its share price. 

U.S. authorities have cracked down on other U.S.-listed Chinese companies and may require tutoring firms to become non-profits, according to a Bloomberg report that hit shares in the sector, including New York-listed TAL Education Group and Gaotu Techedu.

Some policymakers worry Chinese firms are systematically flouting U.S. rules, which require public companies to disclose to investors a range of potential risks to their businesses.

"Public companies must disclose significant risks which, for China-based issuers, may sometimes involve risks related to the regulatory environment and potential actions by the Chinese government," Lee, who served as acting head of the SEC from late January to mid-April, told Reuters in an interview.

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The Wall Street Journal has reported that Didi had been warned by regulators to delay its initial public offering and to address its cyber security. Didi has said it had no knowledge of the investigation prior to its listing.

Lee declined to comment on whether the SEC had opened a probe of Didi for potential disclosure failings.

"We should always be focused on ensuring investors are fully informed of material risks, such as the risks we've seen recently related to China," Lee said.

An SEC spokesperson said that as a matter of policy, the SEC conducts investigations on a confidential basis and does not acknowledge the existence or non-existence of any investigation unless or until charges are filed.

Over the past decade, Washington policymakers have focused on getting U.S.-listed Chinese companies to comply with U.S. Public Company Accounting Oversight Board rules. Last year Congress passed a law that would kick Chinese companies off U.S. exchanges unless they adhere to American auditing standards.

But regulators have not generally focused on Chinese company disclosure issues. Some lawmakers are calling for the SEC to devote more resources to the issue.

"U.S. regulators must insure that American investors and workers are protected from the sort of non-market behavior that is leaving American investors scorched," Senator Bill Hagerty, who sits on the Senate Banking Committee, said in a statement to Reuters.

"This includes enforcing compliance with Public Company Accounting Oversight Board audit requirements, as well as investigating whether there have been sufficient disclosures about the serious potential investment risks associated with such a centrally-controlled economy," Hagerty said.

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